Business Markets

Every business is sitting on a goldmine. Some marvellous opportunity always exists, either within the market already being served, or in another. But most firms never find the gold: or having done so, fail to mine the rich seam.

The idea can be brilliantly new, like the high-tech creations of the computer nerds. Or the inspiration may be as old as the hills - or the floors. There's a US chain of carpet franchises, Maxim, that makes Sir Phil Harris's past sprints look like a crawl. It's annual growth rate is 297%.

That pace of sales expansion, by both nature and the laws of mathematics, must eventually slow. Even new businesses that have never experienced such headiness suffer from the same phenomenon. The chance is spotted and seized. But the entrepreneur runs out of steam - probably before the market does.

Markets can be inexhaustible, as the Griggs family of Wollaston has demonstrated in footwear, another ancient trade. The first Griggs, Benjamin, started making boots in 1901. His heirs didn't produce their first boot to a revolutionary German design until April Fool's Day, 1960. The name was Dr.Martens, and the rest is history.

The secrets of success for the Griggs Group included a goodly supply of family sprigs: the ability to take over other local shoemakers on a friendly basis to sustain expansion ('We've simply talked to families in the next street'): and the special comfort and youth appeal of the air-cushioned Doc Martens boots themselves.

That last paragraph combines two of some valuable pointers to small company goldmines listed by Fortune magazine. First, as noted, you don't need a Microsoft-style new business: mature, even over-ripe industries contain great openings. Second, you must have a winning edge, hard to imitate and quick to appeal.

An example of maturity, though it may look novel at first sight, is healthcare, now rivalling computery as a source of super-growth. In Britain as in the US, providing medical needs - from hospital beds and clinics, via the doctors and nurses who serve them, to the drugs and dressings they administer - is big, fragmented, growing business.

Healthcare is so big that even a fragment can yield a fortune. Supplying drugs to 90,000 patients and finding nurses, etc. for 10,000 more has given one US company $549 million in sales and growth of 110% annually. The clientele is implied by the title: Grancare, Inc.

Whether the customers are grans or punks, the same financial rules apply. Profitable growth, not expansion for its own sake, is what unlocks the future. If the high sales growth continues, but the high margins typical of early success start to dwindle, trouble lies ahead.

A drooping return on capital is also ominous. Unless the business is averaging at least a 15% yield on the equity, without much fluctuation, the growth isn't soundly based financially. The pressure to borrow will mount - and debt should be sparingly used.

Following such sage advice may well limit the pace of expansion. Accepting that there are limits to growth doesn't come easily to the gung-ho entrepreneurial mentality. A 25% annual expansion in sales, though, doubles the business in under three years, which may be steady, but certainly isn't slow.

An American survey of high and low-growth companies showed that, over 21 years, the sluggards actually outperformed the speedsters in the stock market, with returns half again as high. British investors who stuck with the USM shooting stars will know the feeling. In case after case, soaring was followed by slump.

That, however, raises the question of time horizons. Two decades may seem like a century to a management whose activity is expanding by 414% annually, like the gambling business of Grand Casinos: or 386%, like Employee Solutions, which looks after all the staff administration needs for small employers.

But any really good idea - and that one's splendid - will have staying power. Moreover, big company experiences have stressed the paradox that, if management raises its eyes from the short term to well-planned, ambitious long-term objectives, short-term performance improves. That's no magic. Building a golden future forces you to construct a golden base.